Renters Insurance With No Deposit Is Easy To Find!
To the best of our knowledge, every single company writing policies currently will issue a policy with no deposit. That’s because renters insurance never requires a deposit of any kind, ever. A deposit is a refundable payment which is made to someone who is extending you credit or otherwise taking on the risk of you not performing your obligations under the agreement. In the case of insurance, the risk of your non-performance is simply that the policy will cancel if you don’t pay it. No goods or services are generally being extended on anything that could really be considered to be credit.
No renters insurance requires a deposit for that very reason – there’s no real risk if you don’t pay future bills because that would result in you not having coverage. It’s that simple.
Why Do You Have To Make An Upfront Payment With Renters Insurance?
While there’s no deposit for renters insurance, you’ll still have to make an upfront payment. No one will issue you a policy without that upfront payment, generally. There are two main reasons for that.
The first is that insurance is a contract. The (slightly simplified) elements of a contract are that it requires an offer, acceptance, and consideration. The company makes you an offer to cover you for a certain amount of risk. You accept that offer by agreeing to it. So what is consideration?
Consideration is the thing of value that is exchanged in return for the other party’s performance or future performance under the contract. You do want the insurance company to pay your claim if you have one, right? Of course you do. That’s their future performance. In order for them to be bound to that future performance, you need to exchange something of value.
Certain kinds of contracts can be based on future payments without an initial payment, but those are often speculative contracts with additional types of risk on the part of one or all parties to the agreement. Generally, a contract requires that the consideration be in hand in order for the contract to be valid.
Put simply, if you don’t make that first payment, there is no contract and therefore there is no insurance coverage because one of the elements of the contract is missing. There are, of course, exceptions to this rule, but they are rare when you’re dealing with renters insurance. Commercial insurance sometimes works differently, but there are a variety of reasons for that. Ultimately, if you don’t make an upfront renters insurance payment, you won’t have coverage.
Additionally, there is a moral hazard associated with renters insurance with no upfront payment. While all policies are no deposit renters insurance, you’ll find that the moral hazard is a strong incentive for the company to require some sort of payment in order to start the policy.
A moral hazard is something that may incentivize a policyholder to intentionally suffer a loss in order to collect payment under the policy. If the company agreed to pay you $10,000 for your television, you’d have a strong incentive to have something happen to the TV because you’d make over nine thousand dollars of profit if that happened. That’s a moral hazard.
There is an inherent moral hazard involved in issuing a renters insurance policy without any payment, because it gives an incentive to at least some insureds to create losses that wouldn’t otherwise have happened, because they haven’t paid anything towards the policy and it looks like “free money.” The vast majority of people wouldn’t do this, but some people would and that would have an unfortunate impact on rates for the rest of the population who actually pays for their insurance.
That moral hazard is another reason that it’s necessary to make a payment on your renters insurance.
Why Is It Important That The Upfront Renters Insurance Payment Is Not A Deposit?
Premium is generally billed to the insured as it’s “earned.” That means that as coverage is provided in return for the money that’s been paid in, that money is earned by the company in return for providing the coverage. When the prepaid amount dwindles towards zero, another bill is issued.
When you make an upfront payment for renters insurance, you’re paying for coverage that you’ll receive in the next few months. As coverage is provided, that money you’ve paid is earned by the company and another bill is issued. That means that the money has been spent. It’s not a deposit that’s kept to hedge against the risk of you not paying the bill.
Since the money you paid up front is earned, it won’t then be returned to you. The money you pay to start a renters insurance policy is not a refundable deposit, and you should not expect to get it back. If you were to cancel a policy and there were unearned premium, that money would be refunded to you, however.
It’s also important to realize that different underwriters have different types of earned premium. Some underwriters have a minimum earned premium. That’s because there’s work and cost involved to issue the policy in the first place. For example, the first fifty dollars of premium might be fully earned, regardless of how long the policy remains in force.
It’s important to ask the right questions, and make sure you understand what’s refundable, particularly if you need a short-term renters insurance policy. By knowing what you’re paying for and what portion of the premium is immediately fully earned, you can make an educated decision when you buy renters insurance online.
Effective Coverage, the insurance experts for renters, expend time and energy to create answers to questions like this one because most people don’t know a great deal about renters insurance, and they don’t always know where to turn for honest, unbiased answers. We offer exactly that, so you know you get the answers you need. We put this information on the internet so that you can find it even if you already have a policy elsewhere or you’re just curious.
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